Tribunal grants Cenvat credit for molasses used in Ethyl alcohol production

The Tribunal held that Ethyl alcohol/Rectified Spirit is an excisable item under the Central Excise Tariff, allowing the appellant to claim Cenvat credit on molasses used in its manufacture. The Tribunal found the appellant's compliance with Rule 6(3) of the Cenvat Credit Rules, 2004, and interpreted exemption Notification No. 3/2005-CE to include Ethyl alcohol. The impugned order was set aside, and the appeals were allowed in favor of the appellant, with the decision pronounced on 09.02.2017.

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Issues Involved:
1. Whether Ethyl alcohol/Rectified Spirit is an excisable item under Central Excise Tariff.
2. Whether the appellant is eligible for Cenvat credit on molasses used in the manufacture of Ethyl alcohol/Rectified Spirit.
3. Applicability of Rule 6(3) of Cenvat Credit Rules, 2004.
4. Interpretation of exemption Notification No. 3/2005-CE.

Issue-wise Detailed Analysis:

1. Whether Ethyl alcohol/Rectified Spirit is an excisable item under Central Excise Tariff:
The core issue revolves around whether Ethyl alcohol/Rectified Spirit, manufactured by the appellant, is considered an excisable item. The Department contended that Ethyl alcohol/Rectified Spirit is a non-excisable item as it is not mentioned in the Central Excise Tariff during the relevant period. The original authority supported this view, stating that only denatured Ethyl alcohol is covered under Central Excise Tariff Heading 2207 2000, and the exemption under Notification 3/2005-CE applies only to excisable goods, not to non-excisable goods like Ethyl alcohol. However, the Tribunal referred to previous cases, such as Rajshree Sugars & Chemicals Ltd. and Ugar Sugar Works Ltd., which concluded that the restructuring of the tariff from 6-digit to 8-digit did not substantively change the existing rules and that Ethyl alcohol, including Rectified Spirit, remains covered under Heading 2207.

2. Whether the appellant is eligible for Cenvat credit on molasses used in the manufacture of Ethyl alcohol/Rectified Spirit:
The Department argued that since Ethyl alcohol/Rectified Spirit is non-excisable, the appellant cannot avail of Cenvat credit on molasses used in its manufacture. The Tribunal, however, found that the appellant had correctly availed of the exemption and followed the procedure under Rule 6(3) of Cenvat Credit Rules, 2004. The Tribunal cited multiple decisions, including Ugar Sugar Works Ltd. and Bajaj Hindustan Sugar Ltd., which supported the view that Rectified Spirit and denatured Ethyl alcohol are covered under the same tariff heading and that the appellant's actions were consistent with the rules.

3. Applicability of Rule 6(3) of Cenvat Credit Rules, 2004:
The appellant had followed Rule 6(3) of Cenvat Credit Rules, 2004, by paying 5% of the value of exempted goods. The Tribunal noted that the appellant had discharged their obligation under this rule, which was a key point in their favor. The Tribunal referenced decisions like Ugar Sugar Works Ltd., which held that if the credit on molasses used in the manufacture of Rectified Spirit is reversed, there is no violation of any provisions of law.

4. Interpretation of exemption Notification No. 3/2005-CE:
The appellant argued that the exemption Notification No. 3/2005-CE (Serial No. 14) includes Ethyl alcohol, and they had correctly availed of the exemption. The Tribunal agreed, stating that the words "all spirits" in the notification have a wide amplitude, including both denatured and undenatured Ethyl alcohol. The Tribunal's findings were supported by previous decisions and the Hon’ble Supreme Court's ruling in Modi Distillery, which clarified that Ethyl alcohol is not an alcoholic liquor for human consumption and is thus not subject to state excise duty.

Conclusion:
The Tribunal concluded that the impugned order holding Ethyl alcohol as a non-excisable product was not legally sustainable. The Tribunal set aside the impugned order and allowed the appeals, affirming that Ethyl alcohol/Rectified Spirit is covered under the Central Excise Tariff and the appellant is eligible for Cenvat credit on molasses used in its manufacture. The Tribunal's decision was pronounced in open court on 09.02.2017.

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